NJ Supreme Court to Take Up State Pension Dispute as Soon as Next Month

Administration and public-employee unions sidestep Appellate Division and move straight to top court

New Jersey Supreme Court at the Richard J. Hughes Justice Complex in Trenton

The public-employee unions suing for larger state-pension payments are ready for the New Jersey Supreme Court to hear the case, with arguments now scheduled to be held early next month. The Christie administration is equally prepared: It was the governor last week who asked for that step in the high-stakes litigation challenging his decision to break state public-employee pension funding laws.

An order issued yesterday by the Supreme Court officially put the matter in its hands, something many expected would eventually occur after Christie first announced last year that he planned to go back on his promise to make increasing state contributions into the pension system, which has suffered from years of skipped payments by Christie and a prior governor. It is now underfunded by as much as $83 billion.

Christie’s decision also broke a 2011 pension-reform law he signed that, among other changes, sought to establish the increasing state payments as a contractual right of the public employees.

By taking the issue up right away, the Supreme Court is bypassing the Appellate Division as the venue to consider the Christie administration’s appeal of Superior Court Judge Mary Jacobson’s February 23 ruling that said the governor and lawmakers must honor the reform effort and come up with another $1.57 billion for the pension system during the current fiscal year, which ends June 30.

The Supreme Court’s order yesterday also called for briefs to be submitted to the court later this month and for oral arguments to be held on May 6.

The New Jersey Education Association, one of the unions suing for larger payments, is encouraged to see the case going right to the high court.

“Unquestionably, this is a good move,” said Steve Wollmer, communications director for the teachers union.

It was the teachers union that sued nearly a decade ago in a bid to force the state to make larger pension contributions after virtually no payments were made during the 2004 and 2005 fiscal years, and only partial contributions were made during the next two fiscal years.

State on the hook for seven years of increasing payments, as spelled out in the administration’s signature pension-reform law

A ruling from the Appellate Division in 2010 effectively found that though public workers have a right to their pensions, they “possess no constitutionally-protected contract right to the particular level, manner or method of State funding.”

It was in response to that ruling that lawmakers wrote language into the 2011 reform law, which also boosted how much employees contribute toward their pensions, to ensure a series of escalating state payments through the 2018 fiscal year would be made.

A spokesman for Christie declined to comment on the pension case yesterday. But the brief appealing Jacobson’s ruling last week got right to the point, saying she “fabricated a constitutional right to pension funding.”

“The Constitution makes no provision for judicial participation in the annual budget process, and the Supreme Court has repeatedly warned that the Judiciary lacks power to direct the Legislature to make an appropriation or the Governor to recommend or approve one,” the brief said.

Christie, a Republican considering a run for U.S. president in 2016, has tried to make pension reform a signature issue since taking office in early 2010. He worked with Democrats who control the state Legislature to enact the reforms in 2011, and then promoted those changes in speeches throughout the country as he became a national figure in the Republican Party.

Christie also signed legislation in 2010 that was designed to bring the state, in phases over a seven-year period, up to contributing the full amount that actuaries say the New Jersey should be paying on an annual basis to restore the pension system’s fiscal health.

But after abiding by that deal for two fiscal years, last year Christie cut the state pension payment by nearly $900 million to help close a budget shortfall after tax collections failed to live up to his revenue estimates. And since the baseline for those faulty projections had been built into the budget Christie originally put forward for the current fiscal year, he cut the $2.25 billion payment called for in the 2010 law down to $681 million rather than reduce spending elsewhere in the budget -- or increase taxes as Democrats tried to do in an effort to remain in compliance with the reform effort.

The timing of the latest court case is important for a number of reasons. First, the state Department of Treasury should have a pretty good idea of how much money was collected from April income-tax returns by May 6.

Last year, it was those income-tax returns that came up about $800 million short of projections that forced Christie to reduce the promised pension payments. But this year, revenue collections are tracking closer to projections, offering at least hope for a surprise windfall.

And it wasn’t until late June last year that Jacobson first heard oral arguments in the case brought by the unions challenging Christie’s pension cut. Though she determined the workers have a contractual right to the pension contribution based on the reform laws, she also said since the state constitution requires a balanced budget, and with nearly all funds already spent by late June, Christie could get away with making the smaller contribution.

This year, however, a definitive decision from the Supreme Court could come at least a full month sooner, and Christie and lawmakers have already been put on notice by Jacobson’s February ruling to start coming up with ways to make the larger payment.

Christie has also already proposed a $33.8 billion budget for the fiscal year that begins July 1. That spending plan, which lawmakers are still in the process of reviewing, includes a $1.3 billion pension payment, far below the $3.1 billion contribution called for in the 2010 law.

The unions are also suing to force the larger payment during the next fiscal year, which Christie said the state simply cannot afford.

Hetty Rosenstein, state director of the Communications Workers of America, another one of the unions involved in the lawsuit, stressed in her response to the Supreme Court’s decision to take up the pension-funding issue yesterday that employees have been holding up their end of the deal.

“Either we are either a nation of laws, or we aren't,” she said.

“Judge Jacobson said that we are, and that Governor Christie should obey the law and fund the pension,” Rosenstein said. “Let's hear what the Supreme Court has to say."

Christie, meanwhile, is also calling for a new round of pension reforms, including a freezing of the current system in favor of a new retirement plan with features of a 401(k). He also wants local governments to offer their employees less generous health coverage and use the savings to help pay down the current pension system’s debt, which measures between $37 billion and $83 billion depending on which accounting standard is applied.